Monday, April 30, 2012

Marry You? Got $200k?

As the Reuters article below points out, $100-200,000 weddings in Korea are not just for the 1% – they are alarmingly common. Face-saving necessity and a “keeping up with the Kim’s” syndrome have raised the ante on making nuptial arrangements, creating a pressure-cooker social situation. Korea is a society where getting married has historically been virtually mandatory to maintain good social standing, and yet, weddings are costing multiples of the average person’s annual salary. Something’s gotta give. And it is – in the form of young people choosing not to get married increasing in numbers. There are several reasons why fewer Koreans are tying the knot – greater economic freedom for women, the spiraling cost of raising children, overbearing in-laws. A ghastly expensive wedding, and getting hitched to years of indebtedness from hosting one, is one justification.

Getting married in South Korea? Bring a lot of cash!

Eunhye Shin, Reuters. April 27, 2012

SEOUL (Reuters) - The Beatles may have sung "all you need is love," but in South Korea a couple wanting to get married also needs cash, a lot of it - nearly $200,000, or more than four times the average annual income.

The sky-high costs stem from a combination of cultural traditions that mandate expensive pre-wedding gifts between families, such as mink coats and diamond rings, along with a decades-old custom that the groom must fork over money to provide a home.

The average cost for a wedding in 2011 rose about 270 percent from 1999, while the inflation during the same period rose 45.5 percent. Total costs far outstripped the average annual household income at around 48.3 million Korean won ($42,400), according to government data.

Thus, young couples seeking to unite in wedded bliss are forced to borrow from parents or take out loans. With candid discussions of money a cultural taboo in Korea, many are reluctant to speak about the high cost of exchanging vows.

"Korean society is very tightly knit, and people here are very concerned about how others view them," said Harris H. Kim, a sociology assistant professor at Ewha Womans University.

"The wedding works as a status symbol, like a marker of where you stand in the society," he added.

One 27-year-old woman working in the financial industry, who like many others asked to remain anonymous, said her parents paid nearly 90 percent of her 140 million won ($122,900) wedding costs.

"We had to use our parents' money, which probably came from the sacrifice of their own retirement savings," she said.

A 30-year old kindergarten teacher who would only give her surname, Kim, said her husband, whose income is 40 million won, took out a loan for 45 million won in addition to financial aid from their parents for a wedding with 600 guests. The couple didn't know half the people, who were their parents' friends.

Gift-giving also takes a hefty chunk of the cash. Traditionally, the bride and groom's families have exchanged gifts - good silk for new clothes and simple jewelry - as a way of thanking the other family. But these days the silk has turned into fur or luxury handbags, while the jewelry has morphed into a full set of gems.

But the biggest part of the wedding budget comes from soaring housing prices, according to data from, a matchmaking company. The money spent by happy couples for housing last year was 2.5 times higher than in 2000, making up nearly 70 percent of the total cost of a wedding.

"I've had many customers in the last five years who directly asked for a spouse who can at least afford to rent a house," said Sungmi Lee, a manager at

Although most couples choose to spend the money, many are less than happy about it.

"None of that expensive jewelry is actually useful or beautiful, and you know you'll just regret using the money for that after you're actually married and need money for your married life," said Kisun Lee, a 29-year-old consultant. ($1 = 1138.6000 Korean won)

(Reporting by Eunhye Shin, editing by Elaine Lies and Bob Tourtellotte)

Saturday, April 28, 2012

A Gamer on His Own Level

Online computer gaming (the kind that kids, not gamblers, play) has taken Asia by storm over the past decade. An acronym such as MMORPG (massively multiplayer online role playing game) may seem like a mouthful for most mortal humans, but it rolls easily off the tongue of most young Asian gamers. No one has benefited more from the trend than Kim Jung-Ju, also known as Jay Kim and the controlling shareholder of Nexon, who Forbes magazine lists as Korea’s third wealthiest person. His net worth is estimated at $4.3 billion. In a country dominated by a few huge business conglomerates such as Samsung and Hyundai that are controlled by second- or third-generation family ownership, Jay Kim’s scratch-to-riches story stands out as a singular achievement. There are other Korean internet entrepreneurs who have also made fortunes by creating companies such as NCsoft, Naver, Gmarket, Daum and others. But no one has done it with the control, savvy and personality cult that Jay Kim has managed to imbue through Nexon.

When I first met Jay Kim in 2002, Nexon was worth a mere $200 million or so. Though it was a pioneer in the burgeoning online gaming sector, its business presence was confined to Korea and an outpost in Japan and the US West Coast. What struck me more than anything about Jay back then was the clear long term vision he had for the business. He said he hoped to IPO the company in “10-20 years.” When asked why not sooner, he simply shrugged and said that he just wanted the company to build good games, and he was confident that the company would do so. Making a fast buck or achieving world domination were not top-of-mind to him back then.

But things changed steadily and inexorably over the ensuing years. His company’s growth exploded, particularly in China, where its games became some of the country’s most popular. With the company’s success, he received massive pressure from his employees to take the company public, eager as they were to cash in the fruits on their labors. Disney and Electronic Arts both approached him, and they and Nexon did multi-year dances to see whether they could buy out Jay Kim’s business. Ultimately, Jay did decide to IPO the company, feeling that he needed to do so in order to keep Nexon competitive on a global scale. He also made murmurings about the desire to relieve some of the burden off of his own shoulders by professionalizing ownership of the company. An IPO on the Tokyo Stock Exchange (not in Korea, the US or Hong Kong) was executed in 2011 in order to tap Japan’s large and stable domestic retail investor base. The IPO was Japan’s largest of 2011.

Rumors have surfaced this week that Nexon is now preparing a bid to buy out Electronic Arts, its former suitor. It is a delicious twist of fate, as the young padawan has become the master and the old men of the game universe have failed to keep up with the rapidly changing times.

Jay Kim’s detractors call him a boorish, selfish person who discards his former game developers and partners like so many used-up prepaid cards. In a conservative culture such as Korea's where upholding personal loyalties and relationships are considered de rigueur signs of good manners, his personal style is often frowned upon. However, I don’t think that Jay Kim much thinks what others care about him. If he did, he would not have risen out of the conformist masses so decisively to lay claim to such a lofty perch on top of Korea’s business community. He would not have set such a remarkable benchmark for entrepreneur success. And he would not have been able to have such a resounding impact on an industry which has become one of Korea’s best exports. In a word, Jay Kim has been a MetaMMORPGhosis. 

Details Here

Friday, April 27, 2012

Samsung Abbey - An Unroyal Feud

If South Korea had a king, it would be Lee Keun-hee. He is the country’s richest man. He is the Chairman of Samsung, Korea’s flagship business conglomerate, or chaebol. And, like so many other members of royalty worldwide, he is at the center of a dysfunctional family and its battles over money and power.

Sibling spats over inheritances are all-too-common the world over. However, such feuding is seldom played out publicly in decorum-obsessed Korea, especially amongst the elite families. Brothers and sisters don’t criticize each other in the media for being unfilial towards their deceased parents – that’s a serious no-no in a seriously Confucian society. But that’s what Lee Keun-hee – the third child of Samsung founder Kim Byung-Chul – has said about his eldest brother, Lee Maeng-hee. The accusation was in retaliation for the elder brother and Lee Keun-hee’s elder sister calling the Samsung Chairman “childish” and “greedy.”

At the heart of the matter is an equity stake in Samsung Life and other related companies currently worth over $600 million. Through an elaborate cross-ownership structure that would take a brigade of top-notched lawyers weeks to fully understand, Lee Keun-hee is able to exercise control over Samsung’s entire group (including Samsung Electronics) through Samsung Everland (a theme park and resort business) and Samsung Life. The ownership stake in question had been hidden away by the patriarch before his death in 1987 and ostensibly used during his life as a slush fund to influence politicians and curry favors. It seems that, until a few years ago, only Keun-hee amongst the family members knew about the shares. When the stash came to light through the handiwork of a whistle-blower who had worked under him, Keun-hee paid the requisite tax penalty, and then transferred the shares into his beneficial name, rather than divvying them amongst his siblings. His reasoning? The shares were his just deserts for having built Samsung into a world-beating business; his siblings were unworthy in his eyes, since they had been looking after other business interests over the past couple of decades. The court battles to come will bring up many arcane and complex legal issues, including those involving statute of limitations and inheritance law. Up for grabs is effective control of the Kingdom of Samsung itself.

The unfolding drama is a real-life soap opera that trumps the succession frenzy that recently took place across the border with North Korea’s leadership. It is the South Korea’s own reality show version of England’s Downton Abbey, but one that emphatically casts aside the stiff-lipped and starched manners of both cultures’ upper crust societies. From a purely entertainment perspective, let’s hope the show is only in its second season.

Details Here

Saturday, April 21, 2012

Shadow Banking and Its Pound of Flesh – UPDATE

“Rich Sister” Wu Ying’s execution for defrauding her investors has been stayed by China’s Supreme People’s Court. Congratulations to China’s judiciary system for joining the 21st century, at least on this particular case.

Details Here

Thursday, April 12, 2012

Shadow Banking and Its Pound of Flesh

Shadow Banking on Trial

"Rich Sister" Wu Ying weeps during sentencing for defrauding investors

The most shocking thing about the attached article on China’s “Rich Sister” is not so much her methods of having “illegally” raised money or her being accused of subsequently defrauding her investors, but rather, the pending punishment she is facing – execution. Borrowing or raising investment funds through informal, non-official “shadow banking” channels is an all-too-common occurrence in rapidly developing countries with tightly controlled banking systems. Not paying investors back - either because someone can’t or won’t – is, sadly, a misfortune as old as money itself. And showing off wealth obstentatiously through owning multiple homes, cars (including a $500,000 Ferrari) and alluringly placed tattoos is, well, almost a badge of honor in materialistic modern China. On the other hand, putting someone to death for committing a combination of the first two misdeeds (maybe compounded by the third) reflects much worse on the legal system than the culprit. Especially when the legal system belongs to the world’s latest superpower.

Shadow banking systems, wherein money is collected informally from individuals and lent to other small borrowers, arise when the official banking system does not meet the credit needs of small businesses or individuals. Often, as is the case in China today and was the case in Japan and Korea when they were developing at a similar pace 2-3 decades ago, the major banks focus on lending money to large, state-owned or –affiliated borrowers, to the detriment of smaller beneficiaries. This policy of lending big occurs in developing countries for a combination of reasons:

- Banks are directed by government policy to build up strategic industries;
- Banks get a bigger bang-for-the-buck in terms of assets, interest income and fees by lending to large corporate entities;
- Powerful people behind the large corporates are able to exert influence on banks;
- Developing banks lack the credit know-how to lend to small businesses and individuals and manage relationships with the borrowers.

China’s shadow banking is estimated to be between US $1.5 - $2.5 trillion – a staggering size that evidences just how vital this system has become in driving domestic investment. Similarly, in Korea during the height of the “curb”, or “gae”, market during the mid-1990s, informal loans represented 30-40% of total bank assets. In Korea and Japan, much of the market was administered by organized crime organizations. So failure to repay was dealt with harshly. However, the punishment was doled out outside of the official legal system, not as part of it.

“Rich Sister” is not the first person in China to be facing execution because of financial crimes. China has a history of regularly convicting and sentencing guilty persons to death. Interestingly, a high proportion of them are women, reflecting an unfortunate consequence when the ambitious nature of Chinese women collides with the fewer opportunities they have to borrow money through official channels. However, the case of “Rich Sister” has received the most media attention, by far. Rapidly-rising public frustration with domestic economic policies that are seen to unfairly favor the rich and privileged are a key factor.

The hopeful news is that the rattling of public discontent has not fallen on deaf ears. Officials as high as Wen Jiabao, China’s premier, have recently called for major reforms in the banking system, including break-up of the “monopoly” large banks and more systemic focus on promoting small entrepreneurs. This will take time, and reform and restructuring of China’s financial systems will be fraught with moral and ethical peril that will play out with dangerous consequences over the coming years. However, painful reform is surely a necessarily evil to address legal processes that belong more in the time of Shylock and medieval Venice than in the 21st century.

Details Here

Sunday, April 8, 2012

A Tale of Three Auctions

Ru Guanyao Brush Washer

It was a busy week for auctions in Hong Kong and involving Asian buyers. The takeaway? Appetite for rare and exotic items is alive and well, despite some uneven results and the uncertain global economic environment.

Auction #1: Sotheby's 5-day Spring Auction in Hong Kong concluded on April 4. The results were generally positive, but a bit more tempered than feverish auctions of the recent past. A total of US$320 million was spent over 2,784 lots - impressive figures but slightly lower than last autumn, when 3,000 lots worth $410 million were sold. The highlight of the auction was a modest-looking bowl (pictured above), which sold for almost $26.7 million - three times the estimate. This flower shaped ceramic is over 900 years old, and one of only five privately-held Song-dynasty brush washing bowls in existence made in the Ru Guanyao (government ceramic kilns) facility. Another highlight was the wine collection, which sold 100% of its lots at a 11% premium over its $7.4 million estimate. This result underscores that the fine wine market among Asian buyers is recovering in 2012 (the Liv-ex 100 Index was up 2.5% through Feb), after a precipitous drop-off in 2011. Lastly, top-end contemporary art such as this Zhang Xiaogang "Bloodline" series piece (shown below), did well, selling for $6.7 million, 50% above its estimate. An Indonesian and Vietnamese artist also set records.

However, there was a lack of depth of interest for contemporary art below the top-end. The huge appetite for modern pieces present in recent years was absent, perhaps reflecting the cautionary stance of "new money" Asian wealth below the super-rich. Still, the overall collection sold close to its pre-event estimate.     Details Here

Auction #2: Seoul Auction held its Spring Auction of Asian contemporary art in Hong Kong on Tuesday. Similar to the Sotheby's event, results were mixed, even though the auctioneers claimed satisfaction with the results. 41 out of the 64 lots sourced from around the region sold, for a total of $4.1 million. A piece by Whanki Kim - Korea's most revered modern artist - was auctioned at a pre-event estimate of c. $1.3 million.

Auction #3: On the other side of the world, an auction of a very different sort took place, for America's smallest town - Buford, Wyoming with a population of 1, set on 10+ acres with a convenience store, gas station and mobile home. In the internet auction, this lot also went to an Asian buyer, who bid $900,000. The anonymous Vietnamese buyer was quoted as saying that he was fulfilling a dream by owning a piece of America. He beat out other bids from 46 countries.

Perhaps he will need some interesting Asian art pieces and a wine cellar to keep himself company once he moves in.